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Good morning forex friends!  Thought I’d start out the week with a very easy setup on USD/JPY.  Is the pullback an opportunity for the bulls to buy in?

Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.

USD/JPY 4 Hour Forex Chart
USD/JPY 4 Hour Forex Chart

The four hour chart on USD/JPY above is a very textbook “buy the uptrend on a pullback” setup. USD/JPY broke out of consolidation back in May, with enough momentum to break strong resistance just under 122.00.  Since then, we’ve seen forex traders push the pair up to almost 126.00 before reversing back to the downside.  We’re now seeing a test of several arguments for potential technical support:

  1. Potential broken resistance-turned-support area around 122.00
  2. Rising 200 simple moving average as dynamic support area
  3. Fibonacci retracement area from 119.00 – 125.85 swing
  4.  Signs of support in the last couple of weeks around 122.50

Combined with the recent positive outlook from the Federal Reserve on the U.S.’s recovery, mixed with the likelihood we’ll continue to see quantitative easing from the Bank of Japan, and we’ve got a recipe for buyers to take a dip back in on both fundamental and technical arguments.

Of course, there are upcoming catalysts to take into consideration, including the final quarterly GDP read from the U.S. on Wednesday, as well as Japanese CPI and unemployment data on Friday.  With this in mind, I’m looking to scale into a long position, with a wide stop of around one weekly ATR, and a target two times my stop for a nice reward-to-risk ratio.  Here’s what I am doing:

Long half position USD/JPY at 123.00, stop at 120.80, profit target at 125.30

Long half position USD/JPY at 121.60, stop at 120.80, profit target at 125.30

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t follow what I do. Risk Disclosure.

I’m only risking 1.00% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 2:1. Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned by following me on Twitter and Facebook!

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.